A terms-of-trade index that equals 150 indicates that compared to the base year:
A) It requires a greater output of domestic goods to obtain the same amount of foreign goods
B) It requires a lesser amount of domestic goods to obtain the same amount of foreign goods
C) The price of exports has risen from $100 to $150
D) The price of imports has risen from $100 to $150

Question

Quizplus · Accepted Answer

A terms-of-trade index of 150 means that the country now can purchase 50% more foreign goods with the same amount of its own goods. Therefore, it requires a lesser amount of domestic goods to obtain the same amount of foreign goods.

A Terms-Of-Trade Index That Equals 150 Indicates That Compared to the Base